Innovation, Rent Extraction, and Integration in Systems Markets

U of California, Berkeley, Center for Competition Policy Working Paper No. CPC99-06

36 Pages Posted: 26 Feb 2004

See all articles by Joseph Farrell

Joseph Farrell

University of California, Berkeley - Department of Economics

Michael L. Katz

University of California, Berkeley - Department of Economics; Haas School of Business

Date Written: January 2000

Abstract

We consider innovation incentives in markets where final goods comprise two strictly complementary components, one of which is monopolized. We focus on the case in which the complementary component is competitively supplied, and in which innovation is important. We explore ways in which the monopoly may have incentives to confiscate efficiency rents in the competitive sector, thus weakening or destroying incentives for independent innovation. We discuss how these problems are affected if the monopolist integrates into the competitive sector.

Keywords: Firm market structure, monopoly, PB

JEL Classification: L220, L420

Suggested Citation

Farrell, Joseph and Katz, Michael L., Innovation, Rent Extraction, and Integration in Systems Markets (January 2000). U of California, Berkeley, Center for Competition Policy Working Paper No. CPC99-06, Available at SSRN: https://ssrn.com/abstract=506282 or http://dx.doi.org/10.2139/ssrn.506282

Joseph Farrell (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-642-9854 (Phone)
510-642-6615 (Fax)

Michael L. Katz

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

Haas School of Business ( email )

Berkeley, CA 94720
United States

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